Leading Practices in Governmental Processes Facilitating Infrastructure Project Preparation
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Leading Practices in Governmental Processes Facilitating Infrastructure Project Preparation A practical guide for governments, informed by a country-lens review of leading practices January 2019 Foreword Global infrastructure gaps remain large, The reference tool is designed for use by policy- and tackling these gaps is a key priority makers and practitioners responsible for developing for governments in their quest to drive infrastructure projects. While it is aimed specifically at those involved in project preparation, it provides inclusive growth and poverty reduction. instructive lessons on a wider set of activities, including linkages with country-level infrastructure The Global Infrastructure Outlook report prepared plans and project pipelines, and their prioritisation by the G20 Global Infrastructure Hub (GI Hub) and screening, for a broader audience including other estimates the global infrastructure investment need government officials, financial institutions and private between 2015 and 2040 at US $94 trillion. Past infrastructure developers and contractors. studies have pegged project preparation costs at between 5-12% of investment needs and even if the The reference tool will be a useful aid for lower end of this range is considered, financing needs governments in their quest to improve project for project preparation translate to US $4.7 trillion preparation practices and their capacity for preparing over this period, or US $188 billion annually. Yet, the bankable and sustainable projects, and to usher scale and rigour of infrastructure project preparation in universal delivery of infrastructure services and needed to make projects bankable, sustainable and improved quality of living. implementation-ready remains inadequate and requires escalated attention. The G20 Infrastructure Working Group (IWG) has “This tool builds upon identifiedimprovement in project development as the G20 Principles for one of three overarching pillars needed to develop the Infrastructure Project infrastructure as an asset class, along with improving Preparation Phase. the investment environment and promoting greater Structured processes and standardisation. The IWG also formulated the G20 mechanisms for effective Principles for the Infrastructure Project Preparation early-stage project Phase, aimed at improving assessments of project preparation are binding rationale, options appraisal, commercial viability, prerequisites for successful long-term affordability, and deliverability. infrastructure projects”. This Reference Tool on Governmental Processes Mark Moseley Facilitating Infrastructure Project Preparation (or the Chief Operating Officer, ‘reference tool’ hereinafter) seeks to complement Global Infrastructure Hub global initiatives in this regard and is structured as a guidance tool to support governments in implementing infrastructure projects and in their “This reference tool seeks efforts to strengthen the building blocks for to facilitate governments project preparation. in their quest to build the scale and rigour of project The reference tool reinforces conceptual aspects development necessary to and approaches covering the formulation of realise their infrastructure infrastructure plans, project pipeline creation, development ambitions”. feasibility evaluation, project reviews and approvals, project marketing and stakeholder communication, Anand Madhavan with the focus of the tool being on the stages of Director Infrastructure project preparation which occur prior to project and Public Finance, CRISIL procurement. A country-lens approach, involving a Infrastructure Advisory review and profiling of project preparation processes in 15 countries (which can be found in Appendix A), was adopted to identify and incorporate leading practices and lessons learned contained herein. Leading Practices in Governmental Processes Facilitating Infrastructure Project Preparation | 1 Contents 1. Introduction 1.1. Background 7 1.2. Infrastructure project preparation context 8 1.3. About the reference tool 10 1.4. Methodology 12 1.5. Acknowledgments 14 2. Enabling environment for project preparation 2.1. Overview 15 2.2. Policy framework 16 2.3. Public institutional capacity 26 3. Financing project preparation 3.1. Overview 37 3.2. Project Development Funds 39 3.3. Project Preparation Facilities 45 3.4. Government budgets 49 4. Infrastructure planning and project prioritisation 4.1. Overview 51 4.2. Infrastructure planning 52 4.3. Translating infrastructure plans into a prioritised projects pipeline 58 5. Project feasibility, reviews and approvals 5.1. Overview 62 5.2. Project concept and pre-feasibility stage 64 5.3. Feasibility stage 68 5.4. Reviews, audit and approval 73 6. Project communication 6.1. Overview 76 6.2. Stakeholder engagement 77 6.3. Considerations in market sounding 86 Appendix A: Country cases 91 Appendix B: Detailed methodology for reference tool 254 Appendix C: Relevant literature 257 Appendix D: List of organisations contacted 266 Appendix E: Consultant team 270 2 | GLOBAL INFRASTRUCTURE HUB Executive Summary Background Tackling the large global infrastructure gap remains The Global Infrastructure Hub (GI Hub) has led the a priority for governments to drive inclusive growth development of this Reference Tool on Governmental and reduce poverty. The Global Infrastructure Outlook Processes Facilitating Infrastructure Project Preparation report prepared by the Global Infrastructure Hub (hereinafter referred to as the ‘reference tool’) to (GI Hub) estimates that the global infrastructure support the operationalisation of the aforementioned investment needed between 2015 and 2040 is G20 Principles. approximately US $94 trillion. Past studies peg project This reference tool is intended as a guidance preparation costs at between 5-12% of investment document for governments and practitioners involved needs, and even if the lower end of this range is in infrastructure project preparation, and is built on considered, financing needs for project preparation a detailed country-lens review of project preparation translate to US $4.7 trillion over this period, or US $188 practices in 15 countries. The reference tool seeks billion annually. to address challenges faced by governments in early- In 2018, the G20’s Infrastructure Working Group (IWG) stage project preparation through providing guidance identified the key elements for infrastructure growth in five areas, as shown in the following diagram: under a strategic roadmap, “Developing infrastructure as an asset class”, organised under three overarching pillars, the first of which is improving project development. In July 2018, the G20 Finance Ministers and Central Bank Governors endorsed the G20 Principles for the Infrastructure Project Preparation Phase developed by the IWG. Enabling environment for project preparation Policy framework and public institutional capacity (Chapter 2) Financing project preparation PPFs | PDFs | Government budget (Chapter 3) Infrastructure planning and project prioritisation Project Project Planning | Prioritised projects pipeline (Chapter 4) procurement implementation Project feasibility, reviews and approvals Project concept and pre-feasibility | Feasibility | Reviews, audit and approval (Chapter 5) Project communication Stakeholder engagement | Market sounding (Chapter 6) Leading Practices in Governmental Processes Facilitating Infrastructure Project Preparation | 3 Outline of guidance areas Financing project preparation Enabling environment for project preparation As noted, infrastructure project preparation costs A conducive enabling environment for infrastructure in developing countries typically range from 5-10% investment is often a key differentiator between of the total project investment, and about 3-5% of countries that successfully scale up infrastructure and project costs in developed countries. While financing those that face challenges in doing so, and nurturing for project preparation has, in the past, been largely such an environment is largely the responsibility of addressed through government budgetary allocations, governments. The reference tool identifies leading increasing use is now being made of national and practices in two dimensions of government action: sub-national Project Development Funds (PDFs), and of Project Preparation Facilities (PPFs) developed 1. A robust policy framework: that signals clarity, by the MDBs and other multilateral entities. Key consistency and stability of government actions, considerations for governments in utilising each of while providing for agility to adapt and manage these three financing sources are summarised below: changes in the wider infrastructure ecosystem. In developing such a framework, governments 1. Project Development Funds (PDFs): Many should: governments have set up PDFs as a means to provide dedicated financing and bridge capacity • Establish a stable policy and legislative gaps faced by GCAs in project preparation. framework guiding development and private PDFs can be set up at the national and sub- participation in infrastructure that is agile and national level, either with government funding responsive to tackle evolving infrastructure or structured so as to recover costs. They may development needs; have a thematic focus (e.g. climate mitigation) • Develop guidelines, standards and processes or a sectoral focus. Critical considerations in to make the policy framework actionable, together the creation of PDFs are summarised below: with an aligned cascading of policies